J.C. Flowers, Cerberus Agree To Buy HSH Nordbank For Up To $1.2 Billion

By Costas Paris

U.S. private-equity firms J.C. Flowers & Co. and Cerberus Capital Management LP have agreed to buy German lender HSH Nordbank for up to EUR1 billion ($1.2 billion) in a deal to be announced as early as next week, people involved in the matter said.

The bank, owned by the German states of Schleswig-Holstein and Hamburg, is racing to find a buyer by the end of February or face liquidation, after suffering massive losses on non-performing shipping loans. J.C. Flowers already owns about 5% of HSH.

Up until six months ago the bank’s owners were expecting a sale price of a maximum EUR200 million, but a gradual recovery in shipping, higher earnings expectations and a substantial reduction in bad shipping loans made the struggling lender more attractive.

A person familiar with the matter said the deal is likely to be announced as early as next week, but cautioned it could still fall though.

HSH became the world’s biggest ship financier in the 2000s when its balance sheet grew to more than EUR200 billion as it aggressively expanded its shipping portfolio. But it was badly bruised by the 2009 financial crisis that dealt a serious blow to global trade and shipping companies, some of which ran out of money and couldn’t pay back their loans.

HSH’s core portfolio includes infrastructure, renewable energy, commercial real estate, logistics and shipping. It cut its balance sheet to about EUR72 billion at the end of last year from EUR84 billion in 2016, with its ship portfolio standing at EUR5.5 billion. Its non-performing shipping loans are around EUR7 billion, less than half the amount at the end of 2016.

The bank is expected to more than double its 2017 pretax profit to around EUR290 million, the people involved said, and the new owners plan to sell all the sour loans to other investors.

HSH will announce its full-year earnings in March.

One person familiar with the matter said HSH would keep a shipping portfolio worth between EUR5 billion and EUR6 billion and do business primarily with Greek, U.S. and Asian ship owners. Operators are looking to renew their fleets and return to profitability as the shipping sector recovers, the person added.

The bank has plans to cut its staff of 1,900 to 1,600 by 2019, while the new owners are looking at total staff cuts of about 30% Private-equity investors aggressively cut costs at acquired companies, in a move to turn them around and sell them for a profit.

HSH Chief Executive Stefan Ermisch will likely keep his job under the new ownership, the people said. His plan is to cut the bank’s balance sheet to EUR55 billion by 2022.

Write to Costas Paris at costas.paris@wsj.com

Breaking the story

Costas Paris was first to report J.C. Flowers & Co. and Cerberus Capital Management LP have agreed to acquire German lender HSH Nordbank for up to EUR1 billion ($1.2 billion). According to sources, the deal could be announced as early as next week.

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